FOR WHAT FUTURES

HAVE INITIALLY BEEN THOUGHT UP Good explanation Todd Lofton in the book " trade Bases futures" :

" we Will assume, we live in the agricultural State of Nevada. I plant large horned livestock, and you grow up oats in 10 miles from me. Every autumn, when your oats keep up, you transport all crop to me, and I buy it to feed bull-calves. For the sake of justice, we agree, that I will begin to cry to you for oats at the price of the Chicago Commodity exchange in day of delivery. The oats are important for both of us. It is your basic crop, simultaneously oats are my main expenses for cattle feeding. I hope for the low prices. All the summer long you pray, that something, for example, unexpected purchase of grain by Russian, has risen in the price for the grain. One spring day you are to me with the offer: " Let's charge price on oats the next autumn now, and we will choose the price which will allow each of us to receive reasonable profit and we will agree about it. In this case any of us should not worry, the prices in September will appear with what. We can plan is better and easy be engaged in our business, not worrying concerning the price on овёс".
I agree, and we converge at the price of $4.00 for bushel. Such agreement is called as the forward contract. " Contract" - because this agreement between the buyer and the seller, and " forward" it is that we plan to make the actual transaction later or in future time. It is quite good idea, but not without lacks. Let's assume, Russian unexpectedly declared huge purchase, and the prices for oats have risen to $4.50. You begin to think how to terminate our contract. Precisely as well I not so that would aspire to observe our agreement if the unknown crop leads to falling of the prices for oats to $3.50 for bushel. There are also other reasons on which our forward contract can appear outstanding. The storm can destroy all your oat crop. I can sell the cattle breeding business, and the new owner will not count itself as the connected our agreement. Any of us can go bankrupt. Future contracts have thought up to eliminate the problems which have been not stipulated by forward contracts, but to keep thus the majority of their advantages. The future contract is the same forward contract, but with some additions. And quot;
Additions about which speaks Lofton, is first of all standardization of contracts - standard volumes, terms of delivery, the requirement to quality. Only the price is defined during the exchange auctions. The free exchange auctions give the chance to buy or sell the contract at any moment. Thus sellers and consumers of the goods (including financial tools) can realise the goods while the price seems to them comprehensible, for example, exceeding the cost price, and can get rid of the goods if conditions have changed at any moment. Thus, professionals hedge the risks connected with their professional work. In it a main destination of future contracts.

TRADERS EARN ON TRADE IN FUTURES

But, on ineradicable human propensity to earn easily and quickly as soon as there is any market, on it instantly there are speculators. They should not hedge anything, real delivery is not necessary to them. Their purpose to buy more cheaply to sell more expensively. And the future markets from them centralize at stock exchanges, a transparency and high quality of broker service, liquidity and a wide choice of tools, give magnificent possibilities for trading and investments.

TRADE IN FUTURES IS SIMILAR TO TRADING ON FOREX

Process of trade by futures is similar to trading on forex. In the future markets the same principles of technical and fundamental analyses, the same stop and a warrant limit, indicators, schedules, financial news etc. work However, the beginning future trader should mean some moments.

TRADE ONLY IN LIQUID FUTURES

It is necessary to trade in liquid future contracts not to have problems with execution of warrants, that is, to avoid big slide. About liquidity of the contract speaks its volume and open interest (quantity of open contracts at the moment of stock exchange closing). These data are published daily on sites of future stock exchanges. If open interest makes ten thousand and more such liquidity has enough.

ABOUT SPECIFICATIONS OF FUTURES

Before to begin trade in any contract, it is useful to look its specification (too on sites of stock exchanges) and to define time of the auctions, margin requirements, the price of a tic and months of delivery, and also the contract abbreviated name.

THE CHOICE OF MONTH OF DELIVERY

What month to trade? For financial contracts, currencies and indexes exists four contracts - March, June, September and December. Here all is simple enough, it is necessary to mean only, that somewhere in the middle of these months contracts expire, it is necessary to close positions and to pass to the following contract. Particularly dates of the expiration of contracts also can be looked on sites of stock exchanges. At commodity futures of months of trade much more, and many of them bargain simultaneously, therefore it is necessary to choose for trade the most liquid contract - at what open interest in daily reports the greatest. As a rule, it is the nearest contract on time, but not always.

DATE OF THE EXPIRATION OF THE FUTURE CONTRACT

Besides, if you do not wish to wake up and see once, for example, a chain of lorries, loaded grain, on your court yard, it is necessary to know date of the expiration of the contract and to close a position before expiration date, even about day of the first notice (First Notice Day). All it also is on exchange sites. In general, it is necessary to mean, that despite a difference in the prices, all contracts of one tool bargain equally, that is schedules will draw an identical picture, only with shift in the price. Therefore, for example, if you intend to hold a position some months, safely choose the distant contract if its liquidity is high enough. Tendencies of growth and falling on distant contracts will be the same, as on near. Does not happen so that the August live cattle grew, and the October live cattle during same time fell. By the moment of the expiration of the contract its liquidity falls, and the price aspires to spot to the price of these goods.

ELECTRONIC AND ПИТОВЫЕ FUTURES

Still contracts on the same tool can be pit (traded in pit) only in stock exchange business hours) and electronic, traded round the clock. At pit contracts execution of warrants is carried out in pit by a voice, therefore in your terminal execution of such warrant will occur to a delay, instead of immediately, as at liquid electronic contracts. This delay is connected purely with technics of execution of vocal warrants.

ADVANTAGES OF THE EXCHANGE MARKET OVER NOT TRADE

Trade in electronic futures for currencies has variety of conclusive advantages over the market forex. For this reason of most skilled traders prefer to leave with forex on futures.

On futures clearing (connection counter transactions of clients among themselves) occurs on-line and only at a stock exchange on which the given contract bargains. The client gives the order to the broker through the trading terminal, the broker always readdresses the order of the client on a stock exchange, the stock exchange joins the transaction of the given client with the opposite transaction of other client then the transaction of the client appears opened in the terminal. At trade in the electronic future contract all this procedure occupies a share of second since the trading terminal of the client directly is connected to a server of the broker at a stock exchange which is connected to electronic system of a stock exchange. All procedure occurs automatically.

Thus all transactions of clients join is centralised, through a stock exchange. Stock exchange and brokers do not earn on losses of clients – if one client has bought the future on eurodollar and the course has gone downwards this client has received the loss, other client who upon has sold to it this future means has received the same profit. All is transparent and is pure.

Stock exchange and brokers earn only on commission fee, and as quantity of made transactions very big commission fee in some dollars for the client become the good income for them. The more clients make transactions, the more favourably to stock exchanges and brokers. Therefore brokers and stock exchanges are interested in that clients earned and do for this purpose all possible, namely, constantly improve system of clearing of transactions, enter new types of warrants, improve trading terminals.

From the above-stated that the system does not allow the broker to work against the client in any case is very important, first it simply physically is impossible, as quotations are formed by a stock exchange on the basis of transactions of clients and are identical to everything, and secondly to work against the client to not favourably broker since they in this case will receive smaller volume of the auctions and the smaller income.

UNIFORM QUOTATIONS FOR ALL, FORMED AT THE STOCK EXCHANGE

We Will stop on it more in detail.

The market of futures is centralised at a stock exchange and, in process of receipt of demands of clients in system, the system automatically forms quotations. Thus clients transactions form future quotations. Moreover, stock exchanges on the sites spread quotations for the previous trading session (trade day) to within each tic. Therefore at all brokers on futures in trading terminals identical quotations.

It is conclusive advantage over the forex where at each dealer of the quotation different as dealers use various suppliers of quotations and can potentially play sometimes on quotations against the client.

MORE PERFECT ELECTRONIC SYSTEM OF CLEARING OF TRANSACTIONS

The electronic system of clearing transactions of clients is constantly improved for the purpose of increase in quality and speed of execution of client orders. At present on any liquid (with high volume of the auctions) the electronic future it is possible to open/close a position within a second on any movement.

Also there is a certain difference in system of execution of market warrants if on forex the client sees the current price and opens a position the position will be opened only under this price, and only in that case if at the moment of reception of a signal by the dealer the price is not has left against the client. If at the moment of reception of a signal by the dealer the price has left towards the client, the transaction will be all the same open under the price declared by the client. And if at the moment of reception of a signal by the dealer the price has left in a direction of an open position (against the client) it will be offered to client to open under the new price, so-called requot. Thus at strong movement on forex the client cannot open a position at once, but only through some points that can be the decent sum.

On futures transaction opening occurs instantly and under the current price at the moment of reception of a signal by a stock exchange. Thus if the price became for the client of the best, the position will be opened on it. If strong movement the transaction will be practically open instantly and executed under the current price.

LOW COSTS

On futures is not present fixed spread, as on forex. There is a floating difference between bid and ask which is formed directly by clients depending on their warrants. Usually on liquid electronic futures this difference is minimum and equal to 1 tic. Also there is a commission of the broker which is appointed to the client individually, depending on quantity of made transactions. At small quantity of transactions the commission is usually equal spread on similar currency pair on forex, at a considerable quantity of transactions – much more low.

THE BEST CONDITIONS FOR DAY TRADERS

The electronic system of clearing at future stock exchanges allows practically instantly « connect» among themselves transactions of clients that it is impossible to tell about possibilities of the dealer it is required to which considerably more time for connection transactions of the client through bank with opposite transactions. Any dealer will not allow the client to make the transaction with deduction of a position less than 1 minute since for this time it cannot join the transaction through bank and thus profit scalper will be the loss for the dealer. On liquid electronic futures scalping it is quite possible, since all transactions join at once electronic system of clearing of a stock exchange.

Also for scalpers, transactions making a considerable quantity, on futures the lowest commission fee, much more low spread on forex are possible. To the broker it is favourable, when the client makes many transactions, therefore the broker can make more favourable conditions on commission fee for such client.

THE GOOD RELATION TO THE CLIENT

As already it was spoken above, the system trade on electronic futures is arranged in such a manner that neither a stock exchange, nor the broker how cannot earn on losses of clients. And as brokers and stock exchanges earn only on commision they are interested in that clients did more transactions, and it is possible only in that case when clients earn: than deposit &ndash more; that more the client can carry out volume of transactions. Therefore brokers and stock exchanges are interested in that clients earned. Thanks to it at future brokers deposits of clients are most protected, the best execution, loyal commission fee, free consultations on trade in futures, the system of clearing and trading terminals is constantly improved.

THE BEST TRADING CONDITIONS

On electronic futures there are no restrictions on statement of the postponed warrants on distance from the current price. The postponed warrants can be put on any distance from the market.

For clients who work in day, marge on open positions in 2 times below the usual. And under some, most popular, future contracts marge can be even more low.

TO TRADE IN FUTURES SIMPLY!

Broker house Water House Capital suggests you to make transactions with future tools through the popular and convenient trading terminal Metatrader 4 . For trade are given cfd on practically all existing liquid future contracts. If you worked with currencies forex it will be very simple to you to begin trade in futures in Мт4. Open a demo of an abacus and estimate the possibilities in trading by futures!

HISTORY OF OCCURRENCE OF FUTURE TRADE

Future trade has arisen from exchange trade in the real goods. Originally the stock exchange was simply a place where consisted big trade commodity transactions with the cash exchange goods, with delivery to the buyer immediately or in the nearest term. In parallel this process there was a development of trade by the goods or their samples exposed on a stock exchange, with their delivery through certain term (usually estimated in months). In the latter case the goods or have been already made, or it just should be made. Unlike trade in the goods with immediate delivery trade with delivery through certain term demands, that contracting parties solved also concrete questions on quality of the future goods, the sizes of delivered parties etc.

The transactions concluded with term of delivery to the future, unlike contracts with immediate delivery of the goods demand more accurate standardization and warranting of their execution. In other words, in process of development of large-scale industry and requirements following from it there was a necessity of socially-comprehensible standardization of commodity transactions, on the one hand, and warranting of their execution - with another. If standardization of transactions facilitates their conclusion so, conducts to trade turnover increase warranting demands presence of the organisation which incurs the specified problem. This problem is carried out successfully by stock exchanges which spend the big work on standardization of conditions of concluded transactions and are guarantors of their execution.

The system of warranting of execution of transactions developed in two directions. On the one hand, stock exchanges created insurance, guarantee stocks of the exchange goods, and with another - wide development was received by the mechanism of resale before the concluded exchange contracts, allowing the seller or the buyer instead of refusal of execution of the exchange contract (owing to certain economic conditions) to sell the contractual obligation or to buy the new. Last circumstance by evolution has led to working out of standard exchange contracts with delivery of the goods to term and to their reference as independent objects of exchange trade.

The principal cause and necessity of development of future trade consist that last provides removal of those restrictions which trade in directly exchange goods has. The goods as a material benefit bear restrictions for development of exchange trade. To get rid of them it is possible by the trade organisation not the goods, and only the rights to it, i.e. future contracts. Purchase and sale of the goods at a stock exchange gives way to an exchange turn of the future contracts which communication with the market of the real goods has basically indirect character as some percent from the general number of contracts come to an end with real delivery of the goods. Indirect communication consists that owners of contracts constantly sell and buy them according to influence of varying market conditions on their commercial or other activity.

Future trade has appeared in second half XIX century Its occurrence and development are connected by that she has allowed to lower risk of adverse fluctuations of the prices for the capital reference, to reduce the size of the reserve capital demanded on a case an adverse conjuncture, to accelerate return to the monetary form of the advanced capital, to reduce the price of credit trade, to lower distribution costs. Trade at a future stock exchange in comparison with a stock exchange of the real goods distinguish mainly fictitious character of transactions (some percent of transactions come to the end with goods delivery, and the others - difference payment in the prices); basically indirect communication with the market of the real goods through hedging; full unification of all conditions of contracts, except the price and delivery term; transactions as they are registered not between the separate buyer and the seller, and between them and the Clearing house.

Transactions at a future stock exchange consist both on the goods, and on currencies, indexes of actions, interest rates etc. The volume of operations at a future stock exchange, as a rule, many times over exceeds the sizes of trade in the real goods.

the basic goods, transactions with which consist at future stock exchanges, oils, oil and mineral oil, precious and nonferrous metals, a clap, sugar, coffee, cocoa-beans, live cattle are grain.